it must be recognized that distinctions which it is easy and proper to make in theory are difficult to make when dealing with actual facts. There is unquestionably a dangerous potentiality of evil in all great combinations. This means both that they are likely to use unfair methods and also that great harm will be done if they do. Because of the fact that it is probably impossible to reach directly all forms of unfair competition without government supervision, such combinations should be directly supervised by the government to the end that unfair methods be discovered and prevented.27

In the article on the Federal Anti-Trust Act published in March, 1910, before referred to, it was said:

"It can hardly be endured that the law remain in its present state. The logic of events is certain to bring about a change either by continued judicial construction or by legislation." 28

It was also said:

"Obviously judicial construction can hardly be expected to cover the ground wholly and finally, even with the freest use of that convenient fiction, 'what Congress must be held to have intended."" 29

That both these statements were warranted is indicated by the two recent decisions.

A substantial change in the law has been made. Judicial legislation could hardly accomplish more than it has done in these cases. It remains true that judicial legislation cannot do everything. A great step has been made towards the solution of the trust problem. It consists in the fact that attack is at last concentrated, not on combination on a large scale, but on the evils and wrongdoing which accompany combination. It remains to clear up the considerable remaining obscurity of the situation by embodying the principles of these great decisions in a statute which shall lay down clear and definite rules of conduct, and which shall not supplant but supplement the Anti-Trust Act as now construed.

BOSTON, MASS.

Robert L. Raymond.

27 The law ought also to define the terms on which combinations may be made and should insist on genuine fusion, either by requiring outright ownership of plants or in some similarly effective way.

28 HARV. L. REV. 377.

23

29

23

HARV. L. REV. 379.

PRICE RESTRICTION ON THE RE-SALE OF CHATTELS.

THE

HE Supreme Court of the United States has, in its recent decision of the case of Dr. Miles Medical Company v. John D. Park & Sons Company,' denied the right of the owners of chattels, not produced under patents or other statutory grant, to fix the prices at which such chattels might be re-sold to the intermediate dealers and to the ultimate purchasers for use or consumption. The conclusion that the vendor of chattels has no right to impose price-restricting conditions upon their re-sale was reached after arriving at the determination that the manufacturer or producer of chattels in whose production secret processes or other trade secrets are utilized has no different rights in marketing his product than has the owner of general chattel property. The latter determination is of greater interest because it overrides the view which had been generally accepted and had received judicial approval in an overwhelming preponderance of the courts in which this question had been raised.

The bill of complaint in the Miles case alleged the manufacture of proprietary articles or medicines under secret formulæ and by secret processes and the sale thereof under trade-marks and distinctive trade dress. In order, as was alleged, to prevent injury to complainant's business by the sale of these articles at competitive or "cut" prices, complainant adopted a system of contracts controlling the sale and re-sale of its preparations. This system contemplated a consignment to wholesale dealers, who were permitted to sell only to other contracting wholesale dealers and to retail dealers who had contracted with the complainant to sell its preparations at certain fixed prices. It was charged that the defendant, after having refused the opportunity to enter into a consignment contract, had unlawfully induced the complainant's wholesale and retail agents, by means of false and fraudulent representations, to violate their contracts by selling articles of complainant's manufacture to the defendant. It was further

1 220 U. S. 373 (1911).

charged that the defendant's motive in inducing such breaches of contract was to sell complainant's articles at cost or less to attract and secure custom for other merchandise. An injunction against the continuance of such acts was prayed.

These allegations would apparently bring the complaint within the doctrine that an actionable wrong is committed by one who without justification maliciously interferes between two contracting parties and induces one of them to break the contract to the injury of the other, and that, in the absence of adequate remedy at law, equity will interfere to prevent the repetition of the wrong. The case presented does not raise the question of inducing a breach of trust by an agent, because the contract system contemplated that the restriction should apply to the re-sale of goods when acquired by purchase as well as when held on consignment.

3

The defendant demurred to the complaint, attacking the legality of the contracts because in restraint of trade, thereby asserting such want of equity in the plaintiff's position as to deprive it of the protection of the court.

The questions raised and considered by the court were therefore limited to

(1) The right of an owner of articles manufactured under secret processes and formula to impose such restrictions as above outlined, and

2 Glamorgan Coal Co. Ltd. v. South Wales Miners Federation, [1903] 1 K. B. 118 (1902), 2 K. B. 545 (1903), 89 L. T. N. S. 393; Bowen v. Hall, 6 Q. B. D. 333 (1881); Cattle v. Stockton Water Works Co., 10 Q. B. 453, 458 (1875); Lumley v. Gye, 2 E. & B. 216 (1853); Transportation Co. v. Standard Oil Co., 50 W. Va. 611 (1902); Walker v. Cronin, 107 Mass. 555 (1871); Plant v. Woods, 176 Mass. 492 (1900); Chipley v. Atkinson, 23 Fla. 206 (1887); Benton v. Pratt, 2 Wend. (N. Y.) 385 (1829); Rice v. Manley, 66 N. Y. 82 (1876); Van Horn v. Van Horn, 52 N. J. L. 284 (1890); Heath v. Am. Book Co., 97 Fed. 533 (1899).

3 Exchange Tel. Co. v. Central News Co., [1897] 2 Ch. D. 48; Exchange Tel. Co. v. Gregory, [1896] 1 Q. B. 147 (1895); Board of Trade v. Christie Co., 198 U. S. 236 (1905); Hunt v. N. Y. Cotton Exchange, 205 U. S. 322 (1907); Bitterman v. L. & N. Ry. Co., 207 U. S. 205 (1907); Jones v. E. Van Winkle Gin Works, 131 Ga. 336 (1908); Reynolds v. Davis, 198 Mass. 294 (1908); Beekman v. Marsters, 195 Mass. 205 (1907); Schubach v. McDonald, 179 Mo. 163 (1903); Flickenstein Bros. Co. v. Flickenstein, 66 N. J. Eq. 252 (1904); Martin v. McFall, 65 N. J. Eq. 91 (1903); American Law Book Co. v. Ed. Thompson Co., 84 N. Y. Supp. 225 (1903); Kinner v. L. S. & M. S. Ry. Co., 69 Oh. St. 339 (1904); Flaccus v. Smith, 199 Pa. St. 128 (1901); Nashville, etc. R. Co. v. M'Connell, 82 Fed. 65 (1897); Sperry & Hutchinson Co. v. Weber, 161 Fed. 219 (1908); Iron Moulders' Union v. Allis-Chalmers Co., 166 Fed. 45 (1908).

(2) The right of an owner of chattels manufactured or produced under ordinary circumstances to control the prices on all sales of his products.

It is intended in this discussion to consider these questions in the light of the common law only, both because of the impossibility of considering the numerous statutes within reasonable space limits, and because such statutes are either codifications of the common law, or, being wider in their scope, include the commonlaw prohibitions.

At common law limited restrictions as an incident to the sale of chattels are permissible. The accepted test is that such restrictions must not be wider than the protection of the parties thereto demands nor so wide as to affect the public injuriously.5 Thus a single contract determining the price of the re-sale of chattels, not dealing with all or a material portion of all such chattels in commerce, might, if conditions warranted it, be lawful. This commonlaw principle is not peculiar to "trade-secret” articles but is equally applicable to any chattel property. Until recently, however, the doctrine was generally accepted that the owner of "trade-secret" articles had special rights to impose restrictions upon the re-sale of his products.6 The acceptance of this doctrine resulted both from an apparent similarity between the conditions surrounding articles manufactured under trade secrets and those manufactured under patents, and from an apparent analogy betweeen contracts relating to the sale of such articles and contracts relating to the sale of inventions, compositions, railroad tickets, trading stamps, and trade secrets themselves.

4 Elliman v. Carrington, [1901] 2 Ch. D. 275; Grogan v. Chaffee, 156 Cal. 611 (1909); Garst v. Harris, 177 Mass. 72 (1900); cf. Garst v. Hall & Lyon, 179 Mass. 588 (1901); Garst v. Charles, 187 Mass. 144 (1905); Clark v. Frank, 17 Mo. App. 602 (1885); Walsh v. Dwight, 40 N. Y. App. Div. 513 (1899); cf. Export Lumber Co. v. South Brooklyn Saw Mill Co., 54 N. Y. App. Div. 518 (1900).

* Horner v. Graves, 7 Bing. 735 (1831); Nordenfelt v. Maxim Nordenfelt Co., [1894] A. C. 535; United States v. Addyston Pipe & Steel Co., 85 Fed. 271 (1898); Park & Sons Co. v. Hartman, 153 Fed. 24 (1907); Gibbs v. Baltimore Gas Co., 130 U. S. 396, 409 (1889).

Dr. Miles Med. Co. v. Goldthwaite, 133 Fed. 794 (1904); Dr. Miles Med. Co. v. Jayne, 149 Fed. 838 (1896); Dr. Miles Med. Co. v. Platt, Hartman v. Platt, World's Dispensary Med. Assn. v. Platt, 142 Fed. 606 (1906); Wells & Richardson Co. v. Abraham, 146 Fed. 190 (1906), aff. without report C. C. A. 2nd Circ.; Hartman v. Hughes, U. S. Circ. Ct. Dist. Minn., unreported; Paris Med. Co. v. Hegeman & Co., U. S. Circ. Ct. So. Dist. N. Y., unreported; Hartman v. Hobart, U. S. Circ. Ct. Dist. Kan., unreported.

8

Impetus was given to the approval of this special doctrine by the language of courts in the earlier cases in which this question apparently was involved. These cases include Garst v. Harris 7 and Elliman v. Carrington. Each of these was a suit between the vendor and his vendee involving a single contract, not, so far as the records disclose, embracing a system restricting the entire trade in the commodity. Such contracts might well be valid in regard to any chattel property. Unfortunately, each of the courts apparently deduced from the ability of the vendor, because of his natural monopoly, to withhold entirely his article from commerce, his right, as a condition of giving his article to commerce, to limit his license to sell, in the form of a restriction of the price at which the article might be resold, thus basing the decision upon a right peculiar to the owner of "trade-secret" articles.

Additional confusion resulted from the many opinions in John D. Park & Sons Co. v. National Wholesale Druggists' Assn.,' wherein a bare majority of the Court of Appeals of New York agreed in the result, although only a minority agreed in the reasoning by which the result was reached. In this case the complainant sought to enjoin the defendants from carrying on a conspiracy interfering with the complainant's business, because in restraint of trade. The complaint described the articles in question as "patent medicines." It is a matter of common knowledge that few if any socalled "patent medicines" are in fact patented although in the production of all trade secrets are employed. The question having been submitted on demurrer, the Court of Appeals sustained the right of the defendants to combine to maintain prices, because the exclusive right of monopoly granted by the patent laws of the United States included the right to fix prices.10 The court having thus decided this case upon an erroneous conception of the facts, the public accepted the decision as applying to the actual conditions and, in subsequent litigations in other courts, aided by this apparent precedent, litigants secured numerous decisions upholding the

7

177 Mass. 72 (1900).

9 175 N. Y. 1 (1903).

8 [1901] 2 Ch. D. 275.

10 See Straus v. American Publishers' Assn., 177 N. Y. 473, 477 (1904), where the court expressly bases its decision in the Park case on the right of monopoly given by the patent laws.